All Forum Posts by: Jeff White

@Justin Kramp That's a great goal, but unfortunately, Denver is a very tough market to due a true BRRRR deal unless you find a great off market deal or compete with the big wholesallers that spend 10-20k month on marketing alone. The average house in Denver metro is now over 500k, so not much room to work by BRRRRing.

Also, anything on the MLS will be extremely difficult to BRRRR because even the crappy properties are getting over asking and multiple offers since we have such tight inventory right now.

The best you can do is find an off market 3/2 house with 2000 or more sqft in Westminster/Arvada/Lakewood/Denver that has a huge unfinished basement for 350-425k, add two bedrooms and a bathroom down there, and make it a 5/3, so when you go to refi, the appraiser will compare it to other 5/3s in that area with finished basements. Is that possible?  Absolutely!  Is it realistic?  It depends.  

The tricky part would be getting it at such a discount that will make it worthwhile to BRRRR it, and sellers aren't stupid, they know they can get more money on the MLS even in a crappy condition, so that's where you will have to find a deal yourself and probably negotiate it by giving great terms, quick close, "as is" condition, etc. Condos/townhomes are possible too, but again, you will have to find one at a great discount, and most likely off-market.

Realistically, BRRRRR isn't a good strategy here in Denver anymore. Your best bet would be to go to a city where houses sell for 100-150K since it is easier to BRRRR those properties.

Your best ROI right now is a house hack. You get the benefits of low down payment financing, property will still need some work, and then make it your primary residence, rent out the other space or rooms, so you get buy a future investment property and become an on-site property manager as well.  

@Harkrishan Sahi I can't speak for Bakersfield, but I can speak for Denver metro area, and things are extremely hot here with properties going 10-20-50k over asking price for typical 400-500k single family home investment properties.  

If you are looking for a cash flowing market, Denver is no longer that. What are your goals? Investment property that is a single-family?  Multifamily?  Condos/Townhomes?  What is your budget?  

@Katelin M Barson Congrats, on taking the first step by using house hacking to reduce or eliminate your housing costs! That's awesome!

As for your goal of buying a investment property single family home in Westminster/Arvada/Denver right now, that will be a challenge as of today since it is a feeding frenzy out there with people going way over asking combined with low interest rates and little inventory makes it tougher than even six months ago. 

Rates will come back up and more inventory will be on the market. How patient are you?  Do you want something in the next 3-6 months?  The reality is that you will probably have to put out multiple offers and backup offers till one seller accepts, and make offers without seeing it!  Also, you will have to go over asking, waive inspection items unless they are big ticket things, and provide appraisal gap coverage if it doesn't appraise.  

Anything on the MLS in your price range will be mostly swooped up before you even get a chance.

Aurora isn't a bad market, in fact, that's where I tell my investors to go look at since you can find 3/2 condos/townhomes over there in the 200-250k range that rent for 1,850 on Section 8 easily. Most of them are rent ready. With 25% down payment (condos require that much down as investment properties) and no property management, you can probably cash flow $525 per month/$6k per year. With a property manager, cash flow will be $340 per month/$4k per year. Solid base hit deal. That's probably as good as you can get in Denver metro right now without finding an off market deal or do a creative strategy.  

Also, if you really want to maximize cash flow, since you are familiar with rent by room strategy, you will probably have to find a property that shows up as a 3/2 with an unfinished basement for 375-400k that needs a little cosmetic work, finish the basement, add egress windows and closets (making two legal bedrooms downstairs), which makes it a 5/2, and then do the rent by room strategy to get 700-750 per room. 

Using the conservative $700 per room number x 5 bedrooms =$3,500 per month with a $1,700 mortgage payment (20% down payment on a 400k house).

Total Rents = $3,500

- Mortgage PMT = $1,700

Net Cash Flow = $1,800

- Avg Utilities w/internet = $450

Net Cash Flow After Utilities = $1,350

- Maint/Vac/Cap Ex Reserves (10%) = $350

Net Cash Flow Per Month After Reserves = $1,000 per month.  

Thus, $12k per year in net cash flow is realistic, so your ROI will be higher than the Aurora condo/townhouse example that I gave you, but it will require a few more hours per month work on average dealing with five tenants, filling vacancies, dealing with contracts, etc.

@Mariano Alegria Got it, I currently house hack as well. I'm on my 4th, and about to go on my 5th in a couple of months, so it is definitely possible to have multiple mortgages. Basically for house hacking, you are purchasing a new primary residence, and you only have to live in it one year. That's the requirement.  

After that one year, you can purchase another primary residence house hack and turn the previous one into an investment property, and you can keep repeating until you just want to purchase investment properties.

On the other side, purchasing an investment property, you need to have reserves and put down 20-25% per property using conventional financing (Fannie Mae/Freddic Mac). 

For flipping houses, usually people use HELOCs (Home Equity Line of Credit) from their primary residences as down-payments along with hard money loans (10-15% interest rates) to purchase flips + rehab, and then either sell it on the open market or refinance into a conventional loan, but you need to have at least 20% equity after it is repaired. 

@Sloane Gerrity Welcome to BP!!!  This website is a great resource with plenty of articles, podcasts and posts to learn about any real estate topic that interests you.

Those are probably the most popular spots in Denver, so the competition for any property will be fierce for anything that is in decent shape, but there still deals to be had if you are patient and willing to put in multiple offers. What do you think of the neighborhoods next to those spots..Wheat Ridge?  Edgewater? Sloan's Lake? 

Those are popular spots as well close to your favorite locations.  

Have you talked to a lender yet to see what you qualify for?  That will determine your next steps for buying your 2nd property.

@Mariano Alegria You can definitely have more than one mortgage at once, like @Dmitriy Fomichenko said above, you have to connect with a few lenders to see where you qualify, downpayments (20-25% downpayments for investment properties), reserve requirements, etc. Also, it depends on your market, and how much houses costs over there. 

@Manda Gouvion About two months for me, I read about house hacking from a book, and then that led me to BP, and then I consumed every article, podcast and forum post I could to get me comfortable in investing in my market, and I was ready! I got an agent, pre-approval from a lender, and started looking for prospective house hacks and then closed about six months later.

@Mark Cermak I'm interested too!

@James Carlson Great stuff, I wonder if the pandemic is having some of these suburbs reconsider being more flexible with Airbnb due to lose sales tax revenue in 2020?

@Damon Decker The problem with rules like 1% rule are that they create the illusion of deal or no deal just from one rule, and those rules really only apply to markets in the Midwest and South where you can buy houses for 100k and rent out for 1,000, but the appreciation won't be nearly as high as a place like Denver long-term most likely, and also, you are dealing with property management 2000 miles a way.  Also, you make money on appreciation, debt paydown, cash flow and tax benefits. To me, I'd rather invest in my backyard here in Denver, get a little less cash flow, but be close to my investments and get better than average appreciation in the next 10-20 years. 

The ways to achieve better than average returns in Denver metro in a few ways:

1) Find a single family in the 400-500k range with 5+ bedrooms and 2+ bathrooms, and rent by the room. You can easily get $700-$750 per room with shared bathrooms and $850-$900 per room for master rooms with bathrooms.  If you found a 5 bedroom house for 400k in a simple 1960-1970s ranch house, you would get:

4 x 700 = $2,800

1 x 850 = $850

TOTAL GROSS RENTS = $3,650

Not quite the 1% rule, but much better than renting out the whole place for $2,500 relying on only one or two sources of income, but it does require a bit more work dealing with tenant turnover and furnishing the common areas, etc. 

If you added one more bedroom to that house, you could increase your rents to $4,350 (another $700 per month for that room), and then you would be hitting that elusive 1% rule. 

2) Buy a house in Arvada with a basement apartment, and utilize Airbnb to achieve the maximum ROI, it is more work, but Arvada allows for up to 3 investment properties that can be on Airbnb.

3) Find a single family house with multifamily zoning with a separate entrance and living area in the 400-450k range and rent out each part of it.

4) Find condos/townhomes in east Aurora for 200-250k that are 3/2s that can easily be rented on Section 8 for 1,850. Again, not quite the 1% rule, but super close!

Besides the first item, all the other ways will get your close to the 1% percent rule. Denver is a tough market right now with the purchase prices, but it is still possible to cash flow here and make money.